Going green makes sense, and now your investments can go green too as consumer and market awareness has helped the sector rocket in popularity and value. President Joe Biden has made the environment one of his policy pillars thanks to measures such as the Greening Government Initiative and has also renewed the focus on cutting US carbon emissions. These measures are set to transform the US into a global leader in green technologies, and help to create new and potentially profitable investment opportunities. This has given rise to a wide range of ethical funds for investment. And the good news, from a purely financial viewpoint, is that in some cases, ethical funds are now outperforming traditional funds, with the environmental, social, and governance (ESG) category on track for a record-breaking year.
I’ve taken a comprehensive look at the best ethical investment funds on offer and identified the socially responsible funds that are the best performers in recent years so you can align your future prosperity with the well-being of the planet. I’ve also taken the time to match your funds with my ‘best buy’ investment platform, providing you with all the associated costs you need to be aware of.
Also Consider: Best Trading Platforms
Best brokers for impact and ESG investing in May 2023
What is ESG?
ESG stands for Environmental, Social, and Governance, and is a list of criteria utilized by fund managers to measure companies’ ethical impact when being considered for inclusion in ethical funds. Fund managers will measure a company’s ethical impact by considering various factors such as the amount of waste produced, the amount of energy being used , the policies in place to tackle race and gender inequality, its investments and commitment to local communities, shareholder rights, and how transparent it is with its public reporting.
Environmental, Social, and Governance (ESG) works to encourage companies to find ways to positively impact their environment and society to take advantage of financing opportunities on the stock market.
- Environmental – The impact that companies have on climate action and waste management, water stewardship, energy resources management, and reduction of air and water pollution.
- Social – The way companies manage issues regarding human rights, consumer privacy, data security, health and safety, and gender equality.
- Governance – The effectiveness of the board’s management of a company, including ownership structure, financial reporting, and organizational culture.
Importantly, investment managers of ESG funds should avoid including companies involved in poor environmental performance, questionable labor market practices, gambling, the arms trade, animal testing, and all fossil fuel companies regardless of their market performance.
Top ESG funds to consider in May 2023
Parnassus Core Equity (PRBLX)
The Parnassus range of socially responsible funds are some of the best performing ESGs currently on the market. The firm has focused on sustainable investing since its foundation back in 1984 and has taken a lead on ESGs long before it was fashionable. Thanks to its experience, the Parnassus team are leaders when it comes to ESG research, security selection, portfolio construction, risk management, and proxy-voting strategies.
According to the Zacks Mutual Fund Rank rankings, a rating system that will help you find the best mutual funds to outperform the market, the Parnassus Core Equity Fund is well rated. This, in conjunction with its comparatively strong performance and low fees, ensures a strong recommendation from me.
Best buy platform for Parnassus Core Equity: Interactive Brokers
Interactive Brokers is one of our top-rated trading platforms for investing in funds. They offer investors a comprehensive range of accounts to choose from and have one of the largest Mutual Funds on the market, all of which is affordably priced. With Interactive Brokers you can track the performance of your account 24/7 thanks to their interactive web-based trading platform and their intuitive and easy-to-use mobile app.
You can find further information about Parnassus Core Equity on the Interactive Brokers website, including information such as the minimum investment amount and related fees.
TIAA-CREF Core Impact Bond (TSBIX)
TIAA-CREF Core Impact Bond is a great option for investors looking for a fund that invests in a broad spectrum of bonds that exhibit environmental, social, and governance leadership, and delivers strong long-term returns.
Led by parent company Nuveen, the firm’s ESG and fixed income impact investing division is managed by a strong team of over 100 investment sector experts. Using a proprietary ESG framework, the company ranks potential ESG investments and then invests funds into the best rated performers. Strong performance coupled with robust resources and incorporation of impact investments make for a strong overall fund.
Best Buy Platform for TIAA-CREF Core Impact Bond: Fidelity
Fidelity Investments offer commission-free US stocks and ETFs alongside outstanding research and an easy to use and well-designed trading platform for investing, coupled with an extensive range of products. We find the fee structure at Fidelity more favorable to larger investment pots, and Fidelity Wealth is an additional service aimed at customers with accounts of over $250,000 and who could benefit from a personal relationship manager to provide guidance on investments. Fidelity Wealth clients can also benefit from low service fees and a host of other benefits.
You can find further information on the TIAA-CREF Core Impact Bond on the Fidelity website.
Invesco Solar ETF (TAN)
If there is one thing that current developments in Ukraine have shown, it’s just how vulnerable to stress the global supply chain is and that it really is time to move away from fossil fuels. As such, funds such as Invesco Solar ETF make sense and are certain to continue their growth.
Currently, the fund holds the stocks of 44 global companies involved in solar technology development, solar materials production, solar installation and financing, and solar equipment manufacturing. Though there is no denying that it is somewhat pricey, the ETF has returned a three-, five- and 10-year trailing CAGR of 47.8%, 33.9%, and 11.7%, respectively.
Best Buy Platform for Invesco Solar: Charles Schwab
Charles Schwab is one of the leading brokerage platforms in the US and offer investors a fully interactive and streamlined investment platform for both new and seasoned investors, including a good range of options for impact investing. They are consistently rated as one of the best in the US as a result of providing outstanding customer service and offering a comprehensive range of financial products, including Stocks, Mutual Funds, Exchange Traded Funds (ETFs), Annuities and Bonds.
You can find further information on Invesco Solar ETF (TAN)on the Charles Schwab website.
Vanguard ESG U.S. Stock ETF (ESGV)
The Vanguard ESG U.S. Stock ETF has rocketed in popularity recently due to offering solid returns and low costs for a package that is hard to beat. The fund consists of several ethically chosen companies and includes blue chip stalwarts such as Apple, Microsoft, and Amazon.
The VFTAX has one of the lowest expense ratios of any of the funds on our list at just 14 basis points. With a low entry minimum investment of just $3,000 and an excellent track record, it is a great pick for those looking to start making commercially viable ethical investments.
Best Buy Platform for Vanguard ESG U.S. Stock ETF: Vanguard
It makes sense that the best place to buy into the ESGV would be with Vanguard. After all, the fund and the brokerage offering are well rated and a solid pick.
With low-cost trading fees and free regular investing models, this platform is already on our list of best trading platforms.
You can find further information on the Vanguard ESG U.S. Stock ETF on the Vanguard website.
Calvert International Responsible Index Fund (CDHIX)
The Calvert International Responsible Index Fund is a great choice for investors who want to start making ethical investment choices without radically changing their risk exposure. Calvert has a long history with the company’s first ESG launched in 2005. The fund selects positions in developed countries outside of the US, with an emphasis on tech-sector leaders such as Japan.
Top holdings include Taiwan Semiconductor Manufacturing, Swiss-based heavyweight Nestle, and the French pharmaceutical company Roche. The fund employs its own inhouse ESG methodology, the Calvert Principles, and limits its exposure to companies involved in animal testing, tobacco, alcohol, civilian weaponry, and gambling.
Best Buy Platform for Calvert International Responsible Index Fund: Morgan Stanley
Morgan Stanley is a Wall St. giant, and uses its knowhow to ensure favorable returns for investors without compromising the long-term needs of our planet and society.
Calvert, a subsidiary of Morgan Stanley, has become a truly global presence with the company’s product offering recently launching in the competitive European market.
A number of Calvert ESG funds are available on the Morgan Stanley brokerage platform and you can find further information on the Impax Environmental Markets fund on the Morgan Stanley website.
Pax Ellevate Global Women’s Leadership Fund (PXWEX)
For investors looking to invest their money in a cause-specific ESG, the Pax Ellevate Global Women’s Leadership Fund is, in my opinion, the cream of the crop, with its focus on companies that support the advancement of women in the workplace.
The fund is tied to the Impax Global Women’s Leadership Index. To create the index, the firm’s in-house Gender Analytics Team evaluates 1,600 global companies using criteria such as the representation of women in management and gender pay equality. These criteria have helped ensure a truly diverse portfolio spread, and includes positions in Estee Lauder, Amazon, and Microsoft.
Best Buy Platform for Pax Ellevate Global Women’s Leadership Fund: TD Ameritrade
TD Ameritrade is one of the biggest investment platforms in the US with a massive range of investment funds, ETFs, and shares to choose from. Attractively priced and with a genuinely competitive offering, the TD Ameritrade platform is one of the best choices for those just starting to make investments and wanting to learn.
You can find further information on the Pax Ellevate Global Women’s Leadership Fund on the TD Ameritrade website.
FAQs about Ethical Investment Funds
What is the impact of COVID on investing ethically?
The COVID pandemic and resulting lockdowns have seen a surge in activity when it comes to ethical investments. Shares of companies that are involved in combating climate change or other environmental, social, and governance (ESG) issues have outperformed traditional shares in the last year. HSBC research has found that in the three months following the first recorded case of COVID, climate stocks outperformed global equities by 7.6%.
Is investing on an investment platform safe?
Yes, most investment platforms (and certainly all the platforms we have listed above) are authorized and regulated by the Securities and Exchange Commission, giving you peace of mind regarding the standards and practices of the investment platform.
Will ethical investing help save the planet?
Investing in ESG funds used to be seen as virtuous, but investors would expect to take a hit to their returns. However, the pandemic has changed this and ESG investing is not only profitable but has also encouraged companies to take climate change into account. This means socially responsible investors can invest in their future, and the future of our planet simultaneously.
How do I invest in ethical funds?
Ethical funds are now offered by a vast majority of investment platforms. However, the list above will give you an idea of the best funds, and where to find them. Opening an account takes moments and can be done solely online, after which you will be free to purchase the number of shares you want in the ESG fund of your choice.